Australia, Japan Bond Risk Rises, Credit-Default Swaps Show

By Yusuke Miyazawa -
Aug 7, 2012

The cost of insuring corporate bonds
in Australia and Japan from non-payment increased, according to
traders of credit-default swaps.

The Markit iTraxx Australia index rose 1 basis point to
158.5 basis points as of 10:10 a.m. in Sydney, Westpac Banking
Corp. (WBC) prices show. The gauge changed direction yesterday after
falling 12.4 basis points over the two previous trading days to
155.9, its lowest since May 3, according to data provider CMA.

The Markit iTraxx Japan index advanced 1 basis point to
205.5 as of 9:42 a.m. in Tokyo, Citigroup Inc. prices show. The
measure has climbed every day since Aug. 1, according to CMA,
which is owned by McGraw-Hill Cos. and compiles prices quoted by
dealers in the privately negotiated market. It’s ranged 136.2
basis points to 217.3 basis points this year.

Credit-default swap indexes are benchmarks for insuring
bonds against default and traders use them to speculate on
credit quality. A drop signals improving perceptions of
creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for
the underlying securities if a borrower fails to meet its debt
agreements. A basis point is 0.01 percentage point.